No matter what stage of life you\u2019re in, there are\ntimes where large, unexpected expenses come up. It\u2019s often a big medical bill,\nbut it could be any number of other things too \u2013 a natural disaster, a family\nevent, or even the living expenses after losing your job until you can find the\nnext one. For these events, it\u2019s critical that you\u2019ve got an emergency fund.<\/p>\n\n\n\n
An emergency fund is a remarkably simple concept\n\u2013 it\u2019s a pool of savings that you draw on when an unexpected expense arises \u2013\nsomething that you haven\u2019t accounted for in your day-to-day budget, and\ncouldn\u2019t predict ahead of time. <\/p>\n\n\n\n
These happen more frequently than you\u2019d think, and can range from an expense that is a minor irritation, through to a truly intimidating expense. In general, experts recommend that you should build that emergency fund to the point that it can cover<\/strong><\/a> six months’ worth of expenses\u2026 and most people just don\u2019t have that. So why is the emergency fund so important? There are four key reasons:<\/p>\n\n\n\n New Zealand for instance, has lower rates<\/strong><\/a> of personal bankruptcies than many places around the world, but that\u2019s not to suggest that it doesn\u2019t happen. Medical expenses, job loss, irresponsible use of credit, and natural disasters can call push a person into a financially unsustainable position if they don\u2019t take steps beforehand. <\/p>\n\n\n\n Other people might rely on investment for a\nsizable part of their income, only to have that investment go bad and they lose\neverything. At its most basic, an emergency fund ensures that when \u201clife\u201d\nhappens, you\u2019re not left with a stack of bills that you can\u2019t pay.<\/p>\n\n\n\n It depends on the insurance policy that you have, but having insurance rarely means that you\u2019re completely covered for any costs incurred, and these costs can be<\/strong><\/a> very significant indeed. Most insurance policies include excesses \u2013 the amount you\u2019re required to pay when making a claim on your policy, with the insurer covering the remaining amount. <\/p>\n\n\n\n The thing that trips many people up is that\nexcess might itself be quite significant. You might need to visit the dentist,\nand insurance might cover $1500 of the fee, which is great\u2026 except the excess\nis $800. It\u2019s still a significant amount of money, even if the insurance policy\ncovers the bulk of it.<\/p>\n\n\n\n Another example might be home and contents\ninsurance. To keep the policy premiums to a minimum, you might choose not to\ncover contents that have depreciating value \u2013 your television, for example.\nThat way, if something were to happen to the house, the home and contents\npolicy can cover the expensive things that don\u2019t depreciate in value, while you\ncan use the emergency fund to cover the cost of the less long-term things in\nyour home.<\/p>\n\n\n\n The emergency fund can ensure that those excesses\ndon\u2019t hurt your budget and that you\u2019re able to take advantage of your insurance\nwithout risking going into debt in the process.<\/p>\n\n\n\n Financial anxiety is not just for people who have\nno money \u2013 even those in good jobs and houses can worry about losing it all if\nthey feel like they\u2019re on the precipice. That stress can start to impact on a\nperson\u2019s lifestyle and even health, and in a tragic case of irony, that can\ncause them to make the kind of mistakes that can lead them to lose their jobs\nand ending up in financial distress.<\/p>\n\n\n\n Having that emergency pool of money is essential\nfor ensuring that a person feels like they\u2019re in a good place in life, with the\nsecurity to be confident in what they\u2019re doing.<\/p>\n\n\n\n Working for yourself \u2013 whether that be as a\nfreelancer, consultant, or sole trader\/entrepreneur, is the dream of many, but\nit\u2019s a dream that goes unrealized because working for yourself also comes with\ninherent financial risks. Where are the bills going to be paid from, and have\nyou got enough work in the pipeline to cover your living expenses?<\/p>\n\n\n\n That emergency fund is a tool that will allow you\nto break free of the corporate shackles and live the dream. It shouldn\u2019t be\nthought of as a startup business fund, of course, but it is a useful backup to\nhave, just in case an invoice from a client is slow coming through one month,\nor you\u2019re working on a big, multi-month project but limited for time for other\nincremental income until the payoff.<\/p>\n\n\n\n In essence, the emergency fund is a savings pool\ndesigned to protect you from financial distress. It\u2019s difficult for people to\ncome up with big, unexpected bills at the time, so having the money there\nalready is the only solution to prevent the need to borrow and the interest\nfees that that attracts. Building an emergency fund can be as simple as putting\naside $25 or so per week \u2013 it starts humble, but before you know it, the money\npool will be in the thousands of dollars. <\/p>\n","protected":false},"excerpt":{"rendered":" No matter what stage of life you\u2019re in, there are times where large, unexpected expenses come up. It\u2019s often a big medical bill, but it could be any number of other things too \u2013 a natural disaster, a family event, or even the living expenses after losing your job until you can find the next… Continue reading Four Reasons You Need An Emergency Fund<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[20],"tags":[],"_links":{"self":[{"href":"https:\/\/www.thinkfinanceinc.com\/wp-json\/wp\/v2\/posts\/410"}],"collection":[{"href":"https:\/\/www.thinkfinanceinc.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.thinkfinanceinc.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.thinkfinanceinc.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.thinkfinanceinc.com\/wp-json\/wp\/v2\/comments?post=410"}],"version-history":[{"count":1,"href":"https:\/\/www.thinkfinanceinc.com\/wp-json\/wp\/v2\/posts\/410\/revisions"}],"predecessor-version":[{"id":418,"href":"https:\/\/www.thinkfinanceinc.com\/wp-json\/wp\/v2\/posts\/410\/revisions\/418"}],"wp:attachment":[{"href":"https:\/\/www.thinkfinanceinc.com\/wp-json\/wp\/v2\/media?parent=410"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.thinkfinanceinc.com\/wp-json\/wp\/v2\/categories?post=410"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.thinkfinanceinc.com\/wp-json\/wp\/v2\/tags?post=410"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}It gives you a buffer against the craziness of life<\/strong><\/h2>\n\n\n\n
It can supplement insurance<\/strong><\/h2>\n\n\n\n
It can reduce financial anxiety<\/strong><\/h2>\n\n\n\n
It opens up the opportunity to take on new challenges<\/strong><\/h2>\n\n\n\n